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McNealy: Profits mean Unix lives

Sun Microsystems, fighting back competition from Windows NT, posts an 18 percent jump in quarterly to beat expectations.

Workstation maker Sun Microsystems (SUNW), fighting back competition from the Windows NT camp, today posted an 18 percent jump in second-quarter revenues and beat expectations as sales of Unix systems remained strong.

Sun, which has seen its share price recover somewhat Sun at a glance since its drop to the low 30s last fall, is expected to slow NT's advance with the recent introduction of its Darwin graphics workstations and its adoption of a PC-like architecture that should reduce costs, analysts said.

Sun began shipping the low-end Darwin workstations--Ultra 5, 10 and 60--shortly before the second quarter closed on December 28, 1997. The shipment represented an entire refresh of the company's workstations.

Although the revenue contribution from the Darwin workstations was nominal in the second quarter, the boxes are expected to represent 25 percent to 30 percent of the company's revenues in the next year or two, analysts said. Sun formally announced the debut of the new workstations earlier this month.

One analyst said the fact that Sun had no major new product releases and made no major new technology deals did not have much of an impact on the company's financial results.

"There was a lot of demand for the Unix systems and a lot of demand for their robust high-end Starfire servers," said John Jones, an analyst with Salomon Brothers. He noted that Sun was just introducing its Starfire line last year.

Sun posted net profits of $149.4 million, or 38 cents a share, for the quarter, compared with $178.3 million or 46 cents a share a year earlier. But excluding a $110.1 million acquisition charge for Encore Computer's storage products business and Chorus Systems, Sun would have posted profits of $223.2 million, or 57 cents a share.

Analysts had expected the company to report profits of 54 cents a share, according to First Call. Revenues, meanwhile, reached $2.45 billion, up 18 percent from a year ago.

"We are pleased with the results of the second quarter. Rumors are that Unix is dying, if this is dying it sure feels good!," said CEO Scott McNealy in a statement.

Another key factor in today's earnings report is the fact that Sun's existing product line got a boost from its Java software. Ed Zander, president of the company's computer division, said in a conference call that customers Sun has not heard from for a while, in addition to new customers, are inquiring about Sun's thin clients and enterprise servers because of information circulating about Sun's Java, which allows programmers to write code once and run it on any platform.

"It's opening up more and more doors for our sales force to go into and talk," Zander said. "The Java message is helping the overall systems message."